Joel Greenblatt has proposed a stock screen for which he has reported enviable results. He reported an annual 30.8% return for his “Magic Formula” in his book, “The Little Book that Beats the Market.” Since publishing his book, his strategy has performed well, though many analysts who have followed the “Magic Formula” have not seen 30.8% annual returns, but have seen outperformance from this strategy. His results are particularly interesting because his picks are not subjective: they are based on a simple ranking of earnings yield (EBIT/EV) and return on capital.

How rapidly are the Magic Formula stocks added to and dropped from the list? Should an investor add many stocks at once or a few gradually, to skim the best picks over time? In order to kick the tires, I wanted to see how the list of top 50 Magic Formula stocks changes week over week. I generated the portfolio on 8.22.2011, and checked on 8.29.2011, and again on 8.06.2011. Of the 50 Magic Portfolio stocks present two weeks ago, 8 dropped from the list and 8 were added:

Buying 50 stocks all at once on 8.29.2011, or waiting to buy them on 9.06.2011, would have had small impacts on the portfolio’s overall attributes. The mean price-to-earnings ratio has increased from 8.47 to 9.14, the mean price-to-book ratio has increased from 3.30 to 3.33, and the mean beta has decreased from 1.34 to 1.23. As mentioned before, the 50-member portfolio would have differed by 8 names.

This study will continue weekly to observe the number of stocks that are added or taken from this portfolio. Changes could depend on various factors including broad market volatility, quarterly reports, or macro events. Time will tell.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.